Pumping water and cash from Delta

As the West Coast's largest estuary plunged to the brink of collapse from 2000 to 2007, state water officials pumped unprecedented amounts of water out of the Delta only to effectively buy some of it back at taxpayer expense for a failed environmental protection plan, a MediaNews investigation has found.

The "environmental water account" set up in 2000 to improve the Delta ecosystem spent nearly $200 million mostly to benefit water users while also creating a cash stream for private landowners and water agencies in the Bakersfield area.

Financed with taxpayer-backed environment and water bonds, the program spent most of its money in Kern County, a largely agricultural region at the southern end of the San Joaquin Valley. There, water was purchased from the state and then traded back to the account for a higher price.

The proceeds were used to fund an employee retirement plan, buy land and groundwater storage facilities and pay miscellaneous costs to keep water bills low, documents and interviews show.Revenues from those sales also might have helped finance a lawsuit against the Department of Water Resources, the same agency that wrote the checks, documents show.

No one appears to have benefitted more than companies owned or controlled by Stewart Resnick, a Beverly Hills billionaire, philanthropist and major political donor whose companies, including Paramount Farms, own more than 115,000 acres in Kern County.

Resnick's water and farm companies collected about 20 cents of every dollar spent by the program.

Those companies sold $30.6 million of water to the state program, participated as a partner in an additional $16 million in sales and received an additional $3.8 million in checks and credits for sales through public water agencies, documents show.

"For a program that was supposed to benefit the environment, it apparently did two things — it didn't benefit the environment and it appears to have enriched private individuals using public money," said Jonas Minton, a water policy adviser to the Planning and Conservation League, a California environmental advocacy group.

Representatives of Resnick's farm and water companies did not respond to repeated requests for interviews. A woman who answered the phone at the Resnick's holding company last week said, "We don't talk to the press. It's company policy." She transferred the call to a company official who did not respond for an interview request.

The state Department of Water Resources also declined to comment for this story.

A paper accounting thing

The idea behind the environmental water account was to protect the Delta ecosystem without taking water away from people, farms and agencies that held growing expectations — and contracts — for water. By setting aside water that could supplement flows from the Delta, biologists would be able to slow Delta pumps at sensitive times, thereby protecting imperiled fish such as Delta smelt.

The water account was meant to enhance existing environmental protections and protect water users from the possibility that regulators might force them to give up more water to protect fish.Despite good intentions, however, the program lacked the resources to provide the environmental benefits it promised. Traditional users got their water, but the environment suffered. Delta smelt dropped to levels near extinction. Even the backbone of the state's commercial salmon industry, Sacramento River fall-run chinook salmon, broke under the combined strain of ocean fluctuations and a variety of Delta-related problems, possibly including water management. That salmon fishery, which had never before been closed, is now off-limits to anglers for the second consecutive year, leaving supermarkets temporarily devoid of wild California salmon.

The way it was supposed to work was novel. If fish were in danger of being sucked into massive Delta pumping stations, for example, biologists could invoke the account to slow the pumps down. Then, contractors who would otherwise be deprived of water from the slowdown would be made whole with water from the account.

In order to provide that replacement water to contractors, the water account needed water stored south of Delta pumps. The underground water storage facilities in Kern County's aquifers and ancient river formations proved to be its most important source.

But the location at the southern end of the San Joaquin Valley was not ideal. It made more sense to store the water closer to the Delta, where distribution would be easier to a wider variety of places.

So the water in Kern County was "exchanged" for Delta water that was being pumped at record high — and environmentally damaging — rates. The Delta water was then deposited in the environmental water account at San Luis Reservoir near Gilroy.The exchange legally moved the water that was stored undergro

And in Kern County to San Luis, but the water was still there. To complete the trade, then, the underground water had to be treated as if it were being delivered from the Delta.

Sometimes, Kern County water agencies retrieved the "Delta" water from underground for irrigation, but in most cases, the state was delivering so much water they did not need to.Instead, most of the time all they had to do was simply forego storing the excess Delta water and pocket the difference between the low rates they paid to the state and the higher market rates they collected from the sale to the water account.

"I wouldn't pump that water to sell the (environmental water account)," said Dennis Atkinson, general manager of the Tejon Castaic Water District, which sold about $2 million worth of water to the account. "How are you going to make any money? ... It's a paper accounting thing. We never turned on a pump."

The price of water

The cost to taxpayers for Kern County water averaged $196 per acre-foot. The price Kern County paid for Delta water varied, but in 2007, the last year the environmental water account was operating, Kern County water users paid an average of $86 for Delta water. Some of that water was purchased for as little as $28 from a discount program.

The environmental water account was administered by the state Department of Water Resources, which also operates the state-owned pumps near Tracy. It bought most of its water from the Kern County Water Agency, whose general manager insisted the prices charged to taxpayers were fair and necessary to offset the cost of buying, storing and managing the water.

"The prices were in line with what we felt were the appropriate costs," said general manager James Beck.

Still, Beck acknowledged, there was nothing in contracts to prevent sellers from making money.Of course, selling reserves can be risky, and Beck said market prices this year are $350 per acre-foot or more. Given this year's water shortages, he said that if Kern County landowners could go back in time and undo those sales, they would "in a heartbeat."

To Atkinson, of the Tejon-Castaic Water District, it made sense for water districts to reap a return on the sales because water contractors have been paying for the state's dams, pumps and canals since the 1960s, while the demand that more Delta water be dedicated to the environment is more recent.

"These guys have showed up lately and want something someone else has," Atkinson said. "Since they don't have infrastructure, they have to get it from the people who made the investment."

The vast majority of the financing for the nearly $200 million program came from state environment and water bonds that will be repaid with interest over the coming years. Of that total, about 70 percent was used to buy water from entities in Kern County.And of the Kern County sales, the $30.6 million sold directly by Resnick's Westside Mutual Water Company was more than twice the sales of any other entity, records show.

Open spigot

The environmental water account's effectiveness was hampered by the fact it was perpetually short of the 380,000 acre-feet a year envisioned when it was set up. In addition, a 2002 court decision favorable to water users reduced a separate source of environmental water, a cut that had to be made up by the environmental account, according to a 2005 report by the Environmental Defense Fund.

Also in 2005, three years into the fish collapse but the first year scientists could be sure that what they were seeing was a statistically valid plunge, the Contra Costa Times detailed how biologists worried about Delta smelt near the pumps were unable to get water managers to fully accept recommendations to slow the pumps because of concerns about driving the environmental water account into debt.

A study published last fall in the scientific journal Environmental Management concluded the account improved the reliability of water supplies for Delta water users but it was unclear whether it provided any meaningful environmental benefit.

Meanwhile, while the water account was meant to offset the environmental damage done by pumping water out of the Delta, it was being relied upon during a period when the state Department of Water Resources was ramping Delta water deliveries up to record levels. The environmental water account went into effect in 2000, and the five highest water deliveries from the Delta were 2000, 2003, 2004, 2005 and 2006, years in which, along with 2007, state water officials also sold large volumes of discount water that Kern County agencies would buy in 2007 for $28 per acre-foot.

The sharp decline in fish populations began around the same time, starting in about 2002. And while there are likely numerous factors that caused the collapse, most scientists studying the problem believe pumping patterns contributed.

Water officials have argued that the increase in discount water deliveries through a program known as Article 21 made no difference, since the price of water has no biological effect and because the amount of water pumped annually was below the maximum authorized by the U.S. Fish and Wildlife Service.

But regulators disagree.

A permit from the Fish and Wildlife Service, first issued in 2004, contained restrictions that were supposed to protect Delta smelt from going extinct due to water pumping. It was issued based on regulators' understanding that the use of Article 21 would be much less than it turned out to be.

In a 400-page analysis accompanying a replacement permit issued in December, the service's biologists noted that the Article 21 program was used far more extensively than they had been told when they issued the 2004 permit.

And that, in turn, helped drive up overall pumping rates from the Delta, which regulators tied to the environmental decline.

A coalition points elsewhere

Most of the water sold through the Kern County Water Agency originated with about a dozen smaller public water district "member units" and a handful of private interests who previously stored water, mostly from the Delta, in underground reservoirs.

Several of those entities are members of the Coalition for a Sustainable Delta, a group that banded together to fight back against pumping restrictions imposed in late 2007 by courts and regulators.

The coalition has filed three lawsuits and threatened to file several more to shift blame away from water pumping's role in the Delta's collapse. The group contends other environmental threats are also to blame for the Delta's demise, including housing development in Delta floodplains, pesticide use, dredging, power plants, sportfishing and pollution from mothballed ships near Benicia.

The Coalition for a Sustainable Delta's phone number is the same as Paramount Farms, and of the four coalition officers listed on tax documents, three are Resnick employees: William Phillimore, chief financial officer and executive vice president for Westside Mutual and Paramount Farming; Scott Hamilton, resource planning manager for Paramount Farming; and Craig B. Cooper, chief legal officer for Roll International, Resnick's holding company.

A spokesman for the coalition said that although it has an employee working out of the Paramount Farms office, the group is governed by dues paying members and not Resnick. He attributed the heavy presence of Resnick's companies on the group's tax returns to issues associated with getting the new coalition up and running.

"It's an ad hoc coalition. You have to organize that way," said spokesman Michael Boccadoro.